Financial intermediation in the new Europe. Banks, markets and regulation in EU accession countries

Abstract:
This study examines the reform programmes of a number of countries whose economies are in transition from the former socialist, centrally planned models to a market-orientated system.

The work is structured in three parts comprising thirteen chapters overall. Part one - Intermediation, Firms and Financial Markets - reports the progress to date and the tasks remaining. Chapter one deals with the evolution of the banking systems of East-Central Europe. Chapter two takes the story on with proposals for new indicators to measure the degree of development in banking and financial intermediation, with emphasis on the relationships with households. Chapter three explores the progress made in relationships between banks and firms, with special emphasis on small and medium-sized enterprises and the difficulties yet to be resolved. Chapter four reviews the progress made and the implications for the judgement of financial markets concerning systemic risk in the countries of the New Europe.

Part two turns to the role of foreign banks in this transition process with a consistent message that they have been a positive influence in producing gains in efficiency. Chapter five answers the question ‘who needs foreign banks?’ with a firm assertion that the former CEECs surely do as they emerge from decades of socialist domination. Chapter six goes further in analysing the contribution made to the economic climate by international financial enterprises (banks), concluding that they could play a strong role in stabilising financial markets by showing a long-term strategic commitment to regional growth. Chapter seven then examines the role of foreign banks in financial intermediation in the accession countries and concludes that, with the exception of Croatia and the Slovak Republic, bank intermediation in transition countries remains stunted. Chapter eight examines the part played by foreign banks in bringing stability to financial markets in the New Europe and concludes that they play a neutral or positive role and that there is no evidence to suggest they might increase vulnerability to external shocks. Chapter nine looks at whether the shift in Italy’s banks and Italy’s industrial activities are related or independent, concluding that the Italian banks are playing a role in the outsourcing from Italian industrial districts to Eastern Europe to safeguard manufacturing competitiveness.

Part three deals with the issues of regulation, supervision and monetary policy. Chapter ten provides comparative analysis of the relative position of regulation and supervision of the CEEC countries and that of the EU, which reveals a high level of convergence. Chapter eleven explores the trends in the architectures of financial supervision, with particular attention given to the Single Authority Model as one aspect of a concentration of powers of financial supervision. Chapter twelve explores deposit insurance in the New Europe and provides examples of deposit protection best practice around the world. Chapter thirteen studies the characteristics of the interest rate pass-through in the Czech Republic, Hungary and Poland, finding that in Poland it seems complete, for Hungary complete only in some market interest rates and in the Czech Republic rather incomplete.

The book will interest scholars and students engaged in economics, and to a lesser extent politics and law. The book will also have particular relevance for regulators and supervisory institutions, banking professionals, financial operators and legal compliance officers.

Contents:
Part I: Intermediation, Firms and Financial Markets
1. Banking Industry in Central and Eastern Europe: The Unexpected Leader in the Transition and Integration with the EU
2. Deepening Financial Intermediation in the New Europe: The Role of Banks
3. Financial Structures and Private Sector Development in the New Europe
4. Financial Risk in Accession Countries

Part II: Foreign Banks
5. Who Needs Foreign Banks?
6. New Europe Banking: The Role of International Players
7. Financial Intermediation in Accession Countries: The Role of Foreign Banks
8. Foreign Banks and Financial Stability in the New Europe
9. Eastern Passages for Italy’s Banks and Industrial Districts: Are the Two Related or Independent?

Part III: Regulation, Supervision and Monetary Policy
10. Financial Regulation in the New Europe
11. Single Authority in Financial Markets Supervision: Lessons for EU Enlargement
12. Deposit Insurance in the New Europe
13. Interest Rate Pass-Through in EU Acceding Countries: The Case of the Czech Republic, Hungary and Poland